How to Manage Your Checking Account on a Variable Income

One of the biggest financial challenges my family faces is our variable income. The nature of my freelance work means that our income varies a bit from month to month, and my husband is an adjunct professor, so his income changes every semester.

Because of the varying income — and the fact that we don’t receive a paycheck like clockwork every other week — cash flow can get a little difficult to manage. We have a number of items that come out automatically, like my student loan payment, insurance premiums, and the mortgage payment. These regular debits can’t be changed from month to month. If some of my clients pay late, it can create a bit of a cash flow crunch at certain times of the month.

In order to manage the checking account, and avoid the overdraft fees that come with overdrawing your account, it makes sense to employ these two strategies that can serve as a back stop to your variable income and smooth out your monthly cash flow:

Use a Credit Card for Some (or All) of Your Spending

One of the things that I do is use a credit card for a number of our family’s expenses. Things like the milk delivery, gym membership, and other recurring expenses are charged to the credit card automatically, rather being debited from the checking account. Many banks won’t let you do this on auto loans or mortgage loans, but it can work with a number of other expenses.

I also put groceries and online purchases on the credit card, and use credit cards (especially rewards cards) for other regular expenses. When it’s time to pay the bill, I can just use money from the checking account. The due dates for many of my credit cards are in the middle of the month, so that provides some time for clients to pay — even if they are a little late. As long as you don’t spend more than you can pay off each month, you don’t have to worry about interest.

And, if something happens to your income for the month, you can pay a portion of the balance and carry the rest to the next month. This works out as long as the interest from the amount carried is less than what you would pay if an overdraft occurred.

Connect to a Personal Line of Credit

Another strategy we employ is connecting our checking account to a personal line of credit. The line of credit has a low interest rate, and if there is a bit of a gap, we can just move some of the money over to the checking account fee-free. Then, we can pay off the personal line of credit when the money arrives in the checking account. This revolving line of credit is a great backstop against overdrafts.

Once again, this works best if the situation is only a temporary matter of cash flow, and you don’t end up incurring interest charges. If you habitually end up carrying balances and paying interest charges, that might be an indication that it’s time to take a look at your spending and make changes.